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Capitalism puts capital in the hands of private owners for the sole purpose of rent extraction. I’d say decoupling capital from production in this way leads in

Capitalism puts capital in the hands of private owners for the sole purpose of rent extraction. I’d say decoupling capital from production in this way leads inevitably to all the things you mentioned for the simple fact that it optimizes for exactly that outcome rather than producing value. I guess the theory goes that capital invested in profitable endeavors should produce value as a side effect. But it seems the capitalists determined that speculation and protectionism produces far more rent than actual value creation. Edit: Not that this is an argument for central planning. Just that we still need to find a mode of production that optimizes for producing value rather than rent.

pdonis 6y ago
> Capitalism puts capital in the hands of private owners for the sole purpose of rent extraction. That's one possible result of capitalism, but not the only possible one. > I guess the theory goes that capital invested in profitable endeavors should produce value as a side effect. No, you have it backwards. Capital invested in profitable endeavors to produce value is the primary effect. You need capital investment to increase productivity, and you need increased productivity to produce more value with the same inputs, which benefits everyone, but also benefits the owners of the capital. In other words, it's a positive sum process. The fact that ownership of such capital can also be used to extract rents, which is not positive sum, is the side effect. > it seems the capitalists determined that speculation and protectionism produces far more rent than actual value creation. Speculation is not the same as rent seeking; it's a legitimate (though risky) form of investment. Protectionism is not an inherent feature of capitalism; it's what you get when you allow the government to play favorites. > we still need to find a mode of production that optimizes for producing value rather than rent. We already have one: free markets, no government playing favorites. The problem is actually sticking to it.
- CuriousSkeptic 6y ago
  To clarify, I meant capital invested _as private propery_ is primarily for rent extraction. Speculation, as in buying some capital just to exclude it from others to profit from the resulting opportunity cost. Is the kind of rent seeking I was thinking of. I agree with your notion capital as such and it’s role in production. I just think there could more interesting approaches invented to allocate it. For example to endeavors that don’t produce much rent, or even profit, such as commons based production (open source software being one example). Markets mainly optimizes for lowering costs, not producing value. They are important tools for managing resource allocation, but thinking of them as optimize for value puts you dangerously close to interpret market prices as a measure of value.
  - pdonis 6y ago
    > capital invested _as private property_ I'm not sure why that would be the key qualification to make. A corporation that invests capital to improve productivity is investing capital as private property. I don't see why you wouldn't simply focus on whether or not the capital is invested to improve productivity. > Speculation, as in buying some capital just to exclude it from others to profit from the resulting opportunity cost "Speculation" is not normally defined as buying capital, but as buying goods that are expected to become scarce in the future. That is not rent seeking, it's a natural part of a free market, and serves a valid function. In a free market, by buying goods that the speculator expects to be scarce in the future, the speculator drives up their price now (by increasing demand), giving others an incentive to economize (thus conserving the good against future scarcity), and drives down their price in the future when the speculator sells them (by increasing supply), thus increasing the good's availability when needed. The profit the speculator makes is a perfectly normal profit based on the value provided. I'm not sure why buying capital to exclude it from others would be termed "speculation", since buying capital at all, by its very nature, gives ownership of it to the buyer and excludes others. The buyer can rent it out, or can use it himself, but either way any ownership of capital, if used for productivity, earns a profit for the owner. That's why people do it. To term that "speculation" and "rent seeking" would make all productive enterprise rent-seeking, which is wrong. > Markets mainly optimizes for lowering costs, not producing value. Nonsense. Markets optimize for providing the things people want, as shown by their actual choices in that market. If people want more value and are willing to pay more for it, that's what the market will provide. The market for computer hardware is an excellent example: hardware with a wide range of capabilities and prices is available, because there are customers whose value to cost ratio is optimal at every price point over that entire range. In cases where markets end up providing the lowest cost product and that's it, either the additional value in more expensive products isn't worth it to people, so they choose not to pay for it, or information about the additional value in more expensive products is not getting to the potential customers who might be willing to pay for it. The latter case can be viewed as suboptimal, certainly (transactions that would be positive sum if they happened are not happening), but it's not due to any simple flaw in markets; it's due to unavoidable facts about the real world that can't be handwaved away, and certainly can't be "fixed" by government intervention.

pdonis 6y ago

> Capitalism puts capital in the hands of private owners for the sole purpose of rent extraction. That's one possible result of capitalism, but not the only possible one. > I guess the theory goes that capital invested in profitable endeavors should produce value as a side effect. No, you have it backwards. Capital invested in profitable endeavors to produce value is the primary effect. You need capital investment to increase productivity, and you need increased productivity to produce more value with the same inputs, which benefits everyone, but also benefits the owners of the capital. In other words, it's a positive sum process. The fact that ownership of such capital can also be used to extract rents, which is not positive sum, is the side effect. > it seems the capitalists determined that speculation and protectionism produces far more rent than actual value creation. Speculation is not the same as rent seeking; it's a legitimate (though risky) form of investment. Protectionism is not an inherent feature of capitalism; it's what you get when you allow the government to play favorites. > we still need to find a mode of production that optimizes for producing value rather than rent. We already have one: free markets, no government playing favorites. The problem is actually sticking to it.

CuriousSkeptic 6y ago
To clarify, I meant capital invested _as private propery_ is primarily for rent extraction. Speculation, as in buying some capital just to exclude it from others to profit from the resulting opportunity cost. Is the kind of rent seeking I was thinking of. I agree with your notion capital as such and it’s role in production. I just think there could more interesting approaches invented to allocate it. For example to endeavors that don’t produce much rent, or even profit, such as commons based production (open source software being one example). Markets mainly optimizes for lowering costs, not producing value. They are important tools for managing resource allocation, but thinking of them as optimize for value puts you dangerously close to interpret market prices as a measure of value.
- pdonis 6y ago
  > capital invested _as private property_ I'm not sure why that would be the key qualification to make. A corporation that invests capital to improve productivity is investing capital as private property. I don't see why you wouldn't simply focus on whether or not the capital is invested to improve productivity. > Speculation, as in buying some capital just to exclude it from others to profit from the resulting opportunity cost "Speculation" is not normally defined as buying capital, but as buying goods that are expected to become scarce in the future. That is not rent seeking, it's a natural part of a free market, and serves a valid function. In a free market, by buying goods that the speculator expects to be scarce in the future, the speculator drives up their price now (by increasing demand), giving others an incentive to economize (thus conserving the good against future scarcity), and drives down their price in the future when the speculator sells them (by increasing supply), thus increasing the good's availability when needed. The profit the speculator makes is a perfectly normal profit based on the value provided. I'm not sure why buying capital to exclude it from others would be termed "speculation", since buying capital at all, by its very nature, gives ownership of it to the buyer and excludes others. The buyer can rent it out, or can use it himself, but either way any ownership of capital, if used for productivity, earns a profit for the owner. That's why people do it. To term that "speculation" and "rent seeking" would make all productive enterprise rent-seeking, which is wrong. > Markets mainly optimizes for lowering costs, not producing value. Nonsense. Markets optimize for providing the things people want, as shown by their actual choices in that market. If people want more value and are willing to pay more for it, that's what the market will provide. The market for computer hardware is an excellent example: hardware with a wide range of capabilities and prices is available, because there are customers whose value to cost ratio is optimal at every price point over that entire range. In cases where markets end up providing the lowest cost product and that's it, either the additional value in more expensive products isn't worth it to people, so they choose not to pay for it, or information about the additional value in more expensive products is not getting to the potential customers who might be willing to pay for it. The latter case can be viewed as suboptimal, certainly (transactions that would be positive sum if they happened are not happening), but it's not due to any simple flaw in markets; it's due to unavoidable facts about the real world that can't be handwaved away, and certainly can't be "fixed" by government intervention.